چکیده انگلیسی

In recent years, use of multi-attribute auctions has been consolidating as a powerful mechanism in procurement settings where multiple drivers affect the transaction outcome. This paper provides a project management approach for multi-attribute auction design for standardized engineering services procurement in the context of new product development in automotive industry. Two variables are taken into account in the bidding process: price and duration of the given engineering activity. From a theoretical viewpoint, we fully determine optimal suppliers’ bidding strategies and expected outcomes, i.e. score/utility, price and duration, for the buyer under both first score sealed bid and second score sealed bid auctions. We show that this two schemes are equivalent in terms of score/utility even in presence of multi-dimensional suppliers’ private information. Therefore, they could be used interchangeably. Under a specific score function, we also perform a simulation showing that: (i) auction expected outcomes for the Main Contractor are very sensitive when duration reduction is a critical issue and (ii) number of bidders affects score and price but not duration.

مقدمه انگلیسی

Procurement auctions have become enormously popular in recent years as a result of the emergence of Internet-based transactions (Smeltzer and Carr, 2003; Kalagnanam and Parkes, 2004; The European E-Business Report 2006–2007). From the pioneering use of Web auctions developed in 1995 by General Electric, several big companies such as Procter & Gamble, General Motors, Westinghouse and Whirlpool have been using internet auctions for procurement purposes. Internet has in fact opened up new opportunities for industries, such as electronics, grocery and automotive, where use of procurement auctions was not so common. It has also served as a tool for auction process automation in sectors, such as construction, government, where procurement auctions have always been a major mechanism to exchange goods and services.
Across all the sectors online procurement auctions have been widely conducted by buyers as a mechanism for lowering purchasing costs. Auctions for procuring commodities and MROs still account for the highest slice of the total electronic procurement market. In this context, buyers usually chase only a low price, whereas other variables, e.g. lead-time, quality level and payment conditions, are specified just as a transaction requirement. However, in case of more valuable and less standardized items or when lead-time is a critical factor, the buyer might be interested in purchasing a higher quality product at higher price rather than a lower quality product at lower price or might be willing to spend more for a shorter delivery time. If, for this category of goods/services, issues, such as quality and lead time, are not included in the bidding competition, the buyer may risk to “miss” the other possible value drivers or negotiate them subsequently with a waste of time and resources (Chen-Ritzo et al., 2005). For such a reason, in recent years, use of multi-attribute auctions has been consolidating as a powerful mechanism in procurement settings where multiple drivers, and not only product price, affect the transaction outcome. In their review, Teich et al. (2004) point out that nowadays in numerous successful websites, such as Ariba, CombineNet, Emptoris, FreeMarkets, buyers and sellers are involved in auctions or automated tenders where bids always incorporate multiple transaction attributes, e.g. quality, delivery time, warranty and payment conditions. Furthermore, interest (and need) from e-procurement companies in designing novel multi-attribute auction mechanisms is always growing. For instance, Beil and Wein (2003) have built their work on discussion with the Chief Technology Officer of Frictionless Commerce, who was seeking help with designing a new automated eRFQ (Request for Quotation) mechanism.
1.1. Research motivation and questions
Despite the increasing popularity of multi-attribute auction mechanisms, the number of theoretical works on the topic is still restricted and numerous issues are far from being fully investigated. The opportunity to bid on multiple attributes makes, in fact, the analysis of bidding strategies and the issue of auction design very complex. So far interesting analytical results are obtained under restrictive assumptions, such as mono-dimensional private information of bidders or myopic bidding strategy (Che, 1993; Beil and Wein, 2003). Furthermore, the existing literature focuses on auctions under general procurement setting, which if, on one hand, provides a general framework for approaching multi-attribute auctions, on the other hand, may fail to capture specific aspects arising under specific procurement setting, i.e. suppliers’ cost structure and/or specific buyer's needs, making the auction design less effective in terms of predictive effectiveness.
This paper moves, from a theoretical perspective, on the direction of extending current results by considering further features in multi-attribute auction design and, from a practical perspective, on the direction of addressing such an issue in a specific setting. Specifically, this work is based on a research project jointly conducted with Elasis S.C.p.A., the engineering company of FIAT Group, aiming at developing a web-based ICT platform to support engineering supply chain creation and management within the new product development project. Without going into details of other aspects of the project, one task has been related to the analysis of potentials, and subsequent design, of internet-based multi-attribute auctions for suppliers selection, engineering services procurement and collaborative engineering project planning.
Use of multi-attribute auctions for engineering services procurement is motivated by the absolute relevance of non-price attributes in the context of new product development. In a time-based competition environment such as the automotive industry, indeed, firms’ competitive advantage and profitability strongly depend on how able firms are to shrink more and more the duration of the new product development process (Stalk, 1988; Clarke and Fujimoto, 1991; Hendricks and Singhal, 1997; Droge et al., 1999; Kessler and Chakrabarti, 1999). In addition to lead-time, product quality and performance level also matters for a successful new product development. Overall performance of new product development activities actually depends on tradeoffs among cost, lead-time and quality (Cohen et al., 1996; Swink et al., 2006).
However, as better explained in the next section, an auction may be a suitable mechanism for engineering services/activities that are standardized or whose transaction outputs do not critically affect performance of final product. For such a category of activities, quality/technical parameters, e.g. tolerances of CAD (Computer Aided Design) outputs are either imposed as a contractual requirement or regulated by standards and can be managed outside the auction mechanism through a pre-qualifying process. Therefore, for this kind of activities the cost–time trade-off becomes the major aim. One could argue that, when reducing the lead-time matters, firms could set the shortest feasible duration for the given activity as a contractual requirement and still use a price-based auction. However, this procedure leads to sub-optimal outcomes just as the opposite procedure, i.e. requirement of the longest activity duration, since the unavoidably existing trade-off between cost and lead-time is not explicitly considered. Indeed, if suppliers cannot bid on the activity duration, transaction price is likely to be high or low depending on the required duration. On the other hand, a multi-attribute auction mechanism incorporating the lead-time as a further issue for suppliers’ selection more suitably addresses the cost–time trade-off and, therefore, allows firms to reach a higher overall performance.
Furthermore, a multi-attribute auction mechanism can contribute to realize a collaborative planning for the category of standardized engineering activities better than a price-based auction since it allows to involve suppliers in determining more project planning variables, i.e. duration and cost. Advantages of using multi-attribute mechanism are, in fact, also associated to reliability issues. For instance, by asking suppliers to propose a delivery time in addition to price, firms are able to get more accurate information on current time performance of suppliers. The issue of planning variables reliability is of great relevance in new product development process. In fact, most of the crucial decisions are made at a very early stage of the project in presence of scarce and incomplete information. The lack or low reliability of information at the beginning, often, forces firms to review the planning several times during project execution because the project needs a longer completion time and/or allocated budget is not sufficient. Supplier involvement in determining variables, such as activities cost and duration, can contribute to improve reliability of project planning at early stages and, as a result, reduce number and effort of subsequent changes.
In sum this paper provides an approach for multi-attribute auction design for engineering services procurement in new product development. A primary goal in auction design is, from a buyer perspective, to analyse outcomes of several auction schemes in order to choose the best scheme and the best rules for the bidding process, while, from suppliers’ perspective, to properly formulate a potentially successful bid for a given auction scheme. One important issue is about the modelling of agents’ structure and behaviour in a price and time based auction. We recur to Project Management (PM) concepts to characterize cost–duration relationship for a given activity and, overall, define suppliers’ cost structure. To the best of our knowledge, PM has never been applied for auction modelling. However it seems to be very appropriate since it synthesizes all the relevant elements characterizing a project-oriented context such as the new product development process and allows us to answer to the questions regarding the suppliers’ optimal bidding strategy and the expected outcomes for the buyer, i.e. score/utility, price and duration, under two multi-attribute schemes, i.e. first score sealed bid and second score sealed bid auctions. From a theoretical viewpoint, we show that these two schemes are equivalent in terms of score/utility even in presence of multi-dimensional suppliers’ private information. Therefore, they could be used interchangeably. We also perform a simulation to study impact of score function parameters and number of suppliers on auction expected outcomes by showing that (i) auction expected outcomes for the buyer are very sensitive when duration reduction is a critical issue; (ii) number of bidders affects score and price but not duration which, rather, very slightly increases if more suppliers are invited to the tender.
The paper is organized as follows. In Section 2 the context of automotive engineering in new product development is widely discussed whereas a literature overview on both auction and multi-attribute auction theories is presented in Section 3. In Section 4 the model is set up and analysed whereas in Section 5 we report and discuss numerical results from simulation. Finally the paper ends in Section 6 with discussion, conclusions and future developments.

نتیجه گیری انگلیسی

In automotive industry, new product development success strongly depends on the ability of reducing time to market; in such as context, multi-attribute auction mechanisms can provide an useful tool to achieve a better compromise between development costs and times for those project activities characterized by a high level of standardization.
Specifically, this paper analyses the issue of multi-attribute auction design in the context of engineering services procurement from technical suppliers. Engineering phase usually involves numerous technical skills and competences and strongly bears on development costs and lead time. It is clear that in presence of highly complex design activities quality and technical issues matter at least as much as cost and lead time and better outcomes could be obtained if MC and suppliers interact in setting technical parameters in order to overall raise product quality. On the other hand, when technical issues can be treated just as requirements, e.g. the case of standardized activities, trying to contain costs and reducing the duration become probably the main goal of the MC. Under this setting, multi-attribute auction mechanisms are more suitable than classical price-based mechanisms since the underlying value of the transaction does not depend just on price. Price and time based auctions can also work as a mechanism to increase the reliability of engineering planning in that they allow involvement of suppliers in determining variables such as duration and cost of a given activity which are to be used to construct and manage the whole project plan.
This paper proposes use of general PM concepts to model behaviour of agents involved in the auction mechanism within the automotive new product development. Use of PM allows to generalize our results to all the project-oriented settings. Specifically, suppliers’ cost function is linearly decreasing with duration and, in contrast with most of the previous literature, depends on a bi-dimensional type, i.e. α, β. Also, following Che (1993), the MC uses a general quasi-linear score function to evaluate bids. In addition we rely on absence of buyer's commitment, i.e. score function equal to buyer's true utility function.
Results are summarized as follows. We first determine suppliers’ equilibrium bidding strategies and auction outcomes under two classical schemes adapted to the general multi-attribute setting, i.e. 1SSB and 2SSB. Under the general case we prove that the multi-attribute extension of the Revenue Equivalence Theorem due to Che (1993) applies also in presence of suppliers characterized by multi-dimensional type, meaning that 1SSB and 2SSB lead to the same utility for the buyer. The result is not immediate because, in presence of multiple private information, properties of function of stochastic variables do not easily apply as in case of mono-dimensional type and it needs to construct the score probability distribution by integration. Our result suggests the MC could indifferently choose between multi-attribute 1SSB or English Auction (remembering that English Auction is strategically equivalent to 2SSB), to assign the given engineering activity in presence of suppliers which hold multiple private information due, for instance, to number, cost, flexibility and skills of their own resources. Afterwards, we specify a reasonable score/utility function to analytically and numerically study how parameters weighing importance of lead time reduction in the score function and the number of bidders affect auction outcomes. Essentially two interesting insights for the MC come out from the simulation. First, the MC should spend effort and time in correctly estimating score function parameters, i.e. n, when dealing with engineering activities whose duration needs necessarily to be reduced; in this case, indeed, auction outcomes are very sensitive to changes of such parameters. Duration, for instance, is extremely sensitive for low values of the steepness n; therefore a wrong estimate may lead to a suboptimal duration, thus weakening the advantage in terms of utility provided by a multi-attribute auction. Second, increasing the number of participants has an impact on lowering price but not duration, which essentially remains unchanged, rather slightly increases. This somehow surprising result is due to the quasi-linearity of the score function which allows separate duration optimization. The MC can focus just on evaluation of price decrements obtainable by selecting more suppliers. Concerning suppliers, it has to be highlighted that auctions for engineering activities lying on the critical path of the whole project are potentially less attractive in terms of expected rent of the winner. In fact bidding on duration is costly when duration reduction really matters: both suppliers and MC lose “something” leading to lower social surplus.
Our analysis relies on some assumptions. We assume that the naïve hypothesis holds, i.e. score function equal to MC's utility function. If MC lacks of commitment the only feasible solution is in fact the naïve one. As discussed before, Che (1993) admits that in fact only in presence of strong commitment the buyer can set a score function different from its real preference and points out that such commitment is often absent. Furthermore, in automotive industry, where the OEM/MC has a dominant position compared to engineering suppliers, it is very unlikely that the MC commits to a scoring rule which sometimes might not award contract to the supplier providing the highest utility. Therefore, in general, our naïve assumption is consistent with the automotive engineering context. However, in case MC and suppliers can sign a pre-commitment contract, it would be interesting and of both theoretical and practical relevance to determine the optimal score function, i.e. score function maximizing MC's utility. Optimal score function is known when bidders have mono-dimensional type (Che, 1993; David et al., 2006), whereas, in case of multi-dimensional private information, it is a challenging open issue which is worth future exploration.
Our analysis also relies on the assumption of decreasing cost as a function of the duration, i.e. only the decreasing part of the cost–duration relationship in Fig. 1b is considered. While this enormously simplifies the analysis since the private information does not longer depend on three parameters and, most importantly, suppliers’ cost function is not piecewise, from a managerial viewpoint it assumes that the MC is strongly interested in reducing duration of the given activity and thus restricts to low feasible duration such that all the suppliers “suffer” further duration reductions. The MC sets the maximum duration using historical data if the activity has been performed in the past, or OEM new product marketing forecasts in case of new activities. In the first case the MC holds a good knowledge of how long it has taken on average to suppliers to accomplish the task in the past under normal conditions. It has also to be noticed that in the pre-qualifying process suppliers are normally asked about average time performances for a given activity. Therefore, our assumption is quite reasonable for consolidated activities. On the other hand, when dealing with new activities, the MC holds no previous data and information about suppliers’ normal duration is so uncertain that our assumption may not hold. However, as formerly discussed, the MC is unlikely to use an auction mechanism to assign new (not standardized) activities to suppliers (Quiescenti et al., 2006). Therefore, assumption of restrictive maximum duration remains “critical” just in presence of activities whose duration reduction is of relatively moderate importance to the MC compared to price since, in this case, maximum duration may be large enough to include the constant part of the cost–duration relationship in Fig. 1b for some suppliers. Our intuition suggests that, under the general case, suppliers are characterized by tri-dimensional private information which leads them to bid the optimal duration as determined in this paper or their normal duration. This in turn would lead to two sets of suppliers which differ in the score probability distributions. Therefore, the scenario under the general case results therefore much more complex and future work is needed to fully investigate it.
There is a number of other potential directions to build on the basic framework. In this paper, we consider a linear suppliers’ cost function, which is further restricted in the range specified by the MC. Although previous research has shown that equivalence results, i.e. score/utility function, in general, do not depend on the specific form of the suppliers’ cost function in case of mono-dimensional private information (Che, 1993), from an industry application perspective, in situations in which the extra cost for a unit of saved time is not constant, it would be interesting to investigate other suppliers’ cost functions such as those in Demeulemeester and Herroelen (2002). Moreover, an aspect not considered in here, but often part of automotive engineering contracts is the presence of penalties if planned duration is not fulfilled in the execution phase. In a real setting, contract penalties as well as the minimum duration threshold can discourage suppliers from bidding unrealistic durations to win out the auction, thus increasing the effectiveness of multi-attribute auction as reliable planning mechanism. Finally due, on one hand, to the need of shortening procedure times and saving costs, and, on the other hand, to the high inter-connections among most of the engineering activities in new product development, automotive engineering services are not singularly auctioned. This paper studies auction design of a stand-alone engineering activity. The increasing enhancement in understanding the theory of multi-unit or combinatorial multi-attribute auctions can surely allow to adapt, in future, the general analysis to our specific setting of new product development.